Kenya Shilling Weakens 4th Week on Pre-Election Dollar Demand

By Johnstone Ole Turana -
Jan 18, 2013

Kenya’s shilling declined, heading
for a fourth week of losses, as businesses sought to accumulate
dollars ahead of elections in March.

The currency of East Africa’s biggest economy depreciated
0.3 percent to 87 a dollar as of 1:06 p.m. in Nairobi, the
capital, according to data compiled by Bloomberg. The shilling
is down 1.1 percent this year.

The elections will be the first since a disputed 2007 vote
sparked two months of violence in which more than 1,100 people
died. The shilling is likely to weaken in the run-up to the
ballots, Morgan Stanley said in a report on Jan. 14. The
currency is expected to retreat to 87.50 to 88 per dollar levels
by election time, Jeremiah Kendagor, head of trading at Nairobi-
based Kenya Commercial Bank Ltd. (KNCB), said today.

“The shilling is under pressure from increased dollar
demand by businesses which are looking at covering their
positions ahead of the elections,” Kendagor said by telephone.

The currency may receive support from the central bank “to
prevent it from weakening drastically,” Nairobi-based NIC Bank
Ltd. (NICB) said in a note today. The currency will trade in the 87 a
dollar range, the bank said.

The Central Bank of Kenya has been removing money supply
from the market using repurchase agreements and term auction
deposits. The bank has sold dollars on three occasions since the
start of the year to support the shilling, according to data
compiled by Bloomberg. The bank offered 5 billion shillings ($57
million) of seven-day repurchase agreements today, an official
who asked not to be identified in line with policy, said by
phone.

The Ugandan shilling weakened 0.2 percent to 2,665 a
dollar, while Tanzania’s shilling traded unchanged at 1,600 a
dollar.